This guy is Bernanke.

The recent “double” talk between Paulson and several Fed governors have done a great disservice to the markets. The more they talk, the worse things get. They should have just shut up. “Fighting inflation and possibly raising interest rate???” Bernanke is out of his mind. He has no tools to fight inflation. And I will give him a break: half of the rise in crude oil prices are probably not caused by Bernanke’s lowering interest rate.

Anyway. What’s really bad about this market is that both bonds and stocks are falling, and plus the US dollar too. Of course, with bond markets falling, you get a worse housing market by default. It’s simply incredible to watch how the markets fall along with their talk. In one word:

TERRIBLE.

Bob Hoye has certainly been semi-correct that ALL assets will be falling in the “second coming” of the credit crisis. Well, all assets except crude oil so far. You can hear his weekly comments every weekend at howestreet.com.

With US bonds breaking lows (yields and mortgage rates breaking new high), and US dollar coming back down to 72ish range, you bet that foreigners have zero interest in our US-dollar dominated bonds (and full of BS on fake AAA ratings). I truly don’t know how the markets can go back up, except by making another traumatic new low, and put $US on the altar for sacrifice. See, the ONLY way for stocks to stop going down is to kill the dollar. But of course, killing the dollar will also involve a dramatic higher inflation rate to come. Paulson & Bernanke have not much choice left. We have a stagflation in front of us. Unfortunately, this stagflation is unlike 70s. It’s truly going to be worse. I believe we will have more inflation than 70, but less wage inflation than 70. Why? Just go back and re-read my two posts on the most important, and second most important things about investing in the next decade.

The world is NOT coming to an end of course. Everything runs in cycle. It just needs to get worse before it gets better. Unfortunately, many of us will be spending our “prime-earning” years in this down cycle for quite some time, myself included. This era will define our generation.

Looks like my recent calls on markets have been pretty right on.

Back on May 21st, I’ve got out most of my general stock market bets, warning the readers here to get out. My posts are usually out before the market opens, and I, of course, got out on May 20th, with SPY at 141.89.

Back on March 25th, I’ve turned short-term bullish, calling to pick up some stocks if you will. SPY closed at 134.72 on March 24th, and 134.85 on March 25th.

Yesterday SPY was at 136.62.

Did you get the short-term play in the market?

Unfortunately, my short-term forecast for this market doesn’t look too good. This wave down is probably going to be terrible. I’m forecasting that markets will probably AT LEAST match the March low, if not lower.

Yak! Yak! Yeah, too bad indeed.

With the oil prices continue to stay strong, I’m in fact quite worried whether I will be left without much energy stocks going forward. This reminds me a few years back, when I pretty much sold out my energy stocks, and then Katrina hits in the same week, pushing all energy stocks to go far and beyond, leaving me in dust.

In any case, I’ve placed my bets. I’m going to wait patiently for markets to come to me.

Be careful out there. Don’t get your fingers chopped by a falling knife.

I recently got a MP3 player, which I’m using mainly for voice recorder rather than the music player.

I wanted to use the voice recording function in my Samsung cell phone, even though fully featured, but less well-deisigned than Nokia’s phone. Using Samsung’s phone, I can’t voice record a new message without navigating thru menu items and rename the previously created voice file.

Since a simple voice recording function is important to me, I decided to get a dedicated MP3 player/voice recorder. After lots of shopping around, I finally found this MP3 player from Nextar. You can use it also to listen to FM radio. And the 2GB version is only $15 from tribeca tech solutions. The shipping was $7 for one or two MP3 players. The similar model but only 1GB sells for $25 at Walmart.

I think one of the frequent problems that people have with MP3 player is that the rechargeable battery eventually goes dead sooner or later. This model MA566-200 uses an AAA battery. You end up with a more bulky case to enclose it, but at least your unit should never runs out of batteries (even though the battery life is only 12 hours of playing music). In any case, you can choose to use rechargeable AAA battery, so that you don’t need to buy a special $20 rechargeable NiMH battery for a $15 MP3 player.

Anyway. I’m glad that I’ve got this. I almost always have a million things to do, such that I often forget about what I needed to do. With my new voice recorder, I can simply carry it around for recording without the earphones, but only going over my list of things-to-do at office or at home.

Boy, I forgot to hit the publish button for this Wed’s post. You can scroll back now to see it.

Yeah, I have been getting ever busy by days. My work is getting busier too. And I’ve got a car for sale for the last seven months, and I haven’t even had any time to do an ad for it, or even cleaning it up. I have 3 cars now after I bought a Honda Odyssey last year. I should really get rid of my old car before the gasoline prices go up even higher. Next car I will be buying a hybrid for sure. I don’t intend to keep my Odyssey if the gas prices go up too high.

Alright. It’s time to get into my stock trading pits again. I’m literally doing 3 jobs everyday. I apologize if I have been late on my replies of emails.

I just heard this from my friend. There is a 10% discount (or bonus rather) on any gift cards purchased at the store.

This news has been out there for awhile, because this deal last from May 2nd through July 31st. But being late better than never. The maximum amount of gift card for 10% bonus is $1200 per household. I believe Ralphs stores are only present in Southern California because I can’t seem to locate a store outside of that area. In any case, IF you can find a Ralphs store, 10% is a lot of savings. And if you have one of those HSBC credit card, you get 5% extra savings thru cash rebate on top of that.

And if ever you cannot spend $1200 worth of grocery, you can always purchase the gift cards for other stores at Ralphs (I believe), so that you don’t have $1200 sitting in the bank for Ralphs.

Federal Reserve knows best about the art of talking. I think their policy is not really setting the interest rates, but rather forward inflationary expectation via cheap talk.

The full text of yesterday’s talk is here. He tries to point out three longer-term development globally that has affected the (stability of) financial sphere:
1. US housing boom.
2. Credit boom and lax lending in subprime.
3. Unprecedented growth in emerging economy causing both lowering import costs, but also higher raw material costs due to heighten demands.

And then he went on and took up the same song that Greenspan said previously about how “global saving glut” causing lowering of long term interest rates which in turn caused the housing asset inflation. I agreed with Mish that there is not really any global saving glut. Furthermore, shifting blames blatantly like this really doesn’t help the situation. If a low long term interest rate is a problem, the 30 year bonds were yielding just over 5% in Aug of 1998, which is not really much higher than the 4.36% panic low created by Greenspan’s deflationary talk back in Jun 2003. If 4.36% is a problem for runaway housing, then why 5% is not? There is some serious flaw in Bernanke’s logic.

What really happened was M3 money for US has increased by about 50% from 6 trillion to about 10 trillion. All those created money has gone into real estate, emerging economy, and eventually showing up in inflation rates around the globe. Since the economy is global now in nature, economics laws can only work after you account everything around the globe. Looking just at the US economy is not correct but short-sighted. Why are all the commodity prices surging, and third world countries suffering from double digits inflation? Just check to see who has been printing the money.

Yesterday’s dramatic fall in gold price right around Bernanke’s speech is quite intriguing. But what’s more telling was the relative stability in forex and goldminers. I guess Plunge Protection Team has been working hard.

Again, it’s all about managing inflationary expectation verbally for Fed. I’m sure those guys are happy with a core rate without any energy and food. Maybe they don’t eat or drive at all, . Unfortunately, a good management of inflationary expectation cannot put the bread on the table or add more gasoline into your car.

Bill Cara recently opined that maybe he had missed the first part of the trade of generation, which is to short the bond. I myself have also been a little surprised too.

The recent bond market actions have not been good at all. Whenever stock market falls, bonds tend to rise. But NOT this time. Stocks fell, and bonds fell too. While it is still too early to tell based on just a few days of trading, the trends seemed to be broken already.

Here is the chart for the 30-year treasury bond:

As you can see above, long term interest rates have risen. And with the recent tumbling of stock markets, the yields break new high instead of falling back down. Whatever it is I think for the intermediate term, the yields are probably going up. And that probably means more selling in the bond markets, which probably means that $US will continue to face pressure in the future.

If you want to refinance, probably you should look to lock your interest rates whenever the rates dip again (if it dips at all). I am also referring people to my own mortgage broker, so that you can get $100 cash back in addition to matching the really good rates at www.absolutemortgageco.com. If you are interested in getting a loan, you can email me, and I can forward you the details on the broker.

Certainly I think the best time to refi or getting a loan may be behind us. The implication from the rising interest rates for housing markets is obviously negative.

Maybe you could have guessed it.

It’s peak oil. I have seen the show on History Channel, and I think the very same topic may be on CNN. When it makes the news, I think we are close to stage 2, or the wave 3 of Elliot wave in energy investment.

What is peak oil? I have blogged about it before, and you can read it in more details here. But to put it in one sentence, it’s world oil production at its peak. It’s NOT running out of oil. At the peak, there are supposedly half of oil left. Plenty supposedly.

So what is the problem? The problem is that world population and therefore oil demand keeps increasing, while the output starts to decrease. When you have a mismatch between supply and demand in a free market, the end result is that the prices will need to adjust. That is what we are seeing today, with oil price at $130 a barrel.

If peak oil is true, which I think it is, we should see $200 a barrel easily, and possibly $300 or above I believe. The gasoline prices at the pump can easily go to $7 or more (at today’s prices). If you adjust prices by inflation, it can go up even more. What do you think it will do to global economy? Energy is obviously the lifeblood of economy. It’s like a tax. The higher the tax, the less economic activities you will get.

The question about peak oil is always about when it will come, but not whether it will come. Oil is a non-renewable energy. We are basically using the fossil fuels accumulated through millions of years ago. It will simply run out one day. According to many people’s estimates, peak oil will not occur in 2050. But for some experts, peak oil has already occurred in 2005. My personal opinion is the same. It is behind us already.

Now, don’t rush out and buy oil & oil stocks. By all indicators, crude oil is way over-bought, and same for many energy stocks. If you are a long term investor, you can simply hold your position. Otherwise, wait for a pullback before you buy.

How should one play this unfolding energy crisis? In fact, the best returns won’t be in energy stocks, but rather in alternative energy stocks. These include solar, wind, nuclear, geothermal, bio, hydro-electric and ocean energy. Within energy sectors, you can also invest in oil, natural gas, coal, clean coal energies. And another area that I think deserves attention is the new technologies in zero-emission cars. In fact, I think these new cars can easily become the Achille’s heel for this “peak oil” phenomenon. It’s always best to straddle both sides of views and make sure that one is unbiased. With more than 60% of the crude oil going towards transportation needs in the US, if the transportation problem is resolved, the crisis derived from peak oil can possibly disappear overnight.

Here are some promising candidates. Especially with the first one (Air-Car), I’m totally impressed.
1. Air Car at 1000 miles per gallon.
2. Electric car from Ford.
3. Chevron owning patent on needed batteries for EV (electric vehicle), and killing the commercial EVs. This is a conspiracy theory. I have not investigated this enough, but it looks like there is some truth in it.

On one hand, the hard-core peak oil theorists see that peak oil signals the decline of human civilization. On the other hand, if the above technologies come online soon enough, the optimistic technologists believe that human innovation always triumphs. I don’t know how exactly things will turn out. But it is apparent to me that the technologies are not coming fast enough. There will be some economic chaos due to very high crude oil prices. And investing in alternative energies will probably be a winning bet whichever scenario it turns out to be.

Of course, the farther out you go out from oil, the higher volatility you will suffer. Just be prepared for the wild ride.